FACT: Australia Can Be A Solar Powerhouse

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U.S. Solar Industry Has A Positive Trade Balance With China. A GTM Research study prepared for the Solar Energy Industries Association in August 2011 found that the U.S. had net exports of solar energy products of $1.9 billion in 2010, and net exports of $247 million to $540 million to China. This chart of PV imports and exports in 2010 shows that the U.S. is a net exporter of solar technology overall and when compared with China:

While the U.S. had net imports of solar panels in 2010, it had net exports of polysilicon (the raw material used to create panels) and solar factory equipment. The report also found that in 2010, “U.S. solar energy installations created a combined $6.0 billion in direct value, of which $4.4 billion (75%) accrued to the U.S.” [GTM Research, August 2011]

However, China Has Outpaced The U.S. In Solar Panel Production In Part Due To Better Government Incentives. While the U.S. has competed well with China in several sectors of the solar industry, China is ahead in solar cell and panel production. A capital investor said that this was not due to cheaper labor costs — solar cell production is not particularly labor-intensive — but rather due to government incentives for solar, according to a September 2011 New York Times report:

Loans at very low rates from state-owned banks in Beijing, cheap or free land from local and provincial governments across China, huge economies of scale and other cost advantages have transformed China from a minor player in the solar power industry just a few years ago into the main producer of an increasingly competitive source of electricity.

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“There is no question that renewable energy companies in the United States feel pressure from China,” said David B. Sandalow, the assistant secretary for policy and international affairs at the United States Energy Department. “Many of them say it is cheap capital, not cheap labor, that gives Chinese companies the main competitive advantage.”

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[K. K. Chan, the chief executive of Nature Elements Capital, a Chinese clean energy investment company based in Beijing] attributed the Chinese industry’s low costs not to inexpensive labor in China — high-technology solar panel manufacturing is not labor-intensive — but rather to free or subsidized land from local governments, extensive tax breaks and other state assistance.

[New York Times, 9/1/11, emphasis added]

China Has Sent Long-Term Signals About Its Investments In Renewable Energy. A Brookings Institution report explained how Chinese policies have helped its clean technology industries:

A huge part of the [reason for China's clean economy success] has to do with China’s ability to channel vast sums of affordable capital into innovative large-scale deployment projects–something that the U.S. continues to struggle with. The numbers speak for themselves. In 2010, China put into place a staggering $54.4 billion in clean energy investments. Of this, asset financing–funding for hard assets like wind farms and solar arrays–accounted for more than $47 billion of the total. By contrast, U.S. private investment in clean energy totaled $34 billion, with just $21 billion or so in asset finance. Now the gap is widening further, with Chinese asset finance investment in Q1 2011 clocking in $10.9 billion as compared to just $2 billion in the United States.

What is China’s secret in ensuring deployment finance? China has been inordinately successful in mobilizing large volumes of low-cost capital through its state-owned banks and other financial institutions. Clean energy projects have received preferential access to bank loans at interest rates far below what is available in other countries. Moreover, state-owned enterprises, especially the “Big Five” power companies, have been major investors across a broad range of energy conservation, pollution control, and renewable energy projects. For instance, China Guodian Corporation–one of the Big Five–recently announced a plan to invest $3 billion over the next five years in a variety of clean energy projects, including thermal, wind, natural gas, and biomass power stations in southwest China.

But that is only part of the story. Critical to China’s success is its articulation of a comprehensive and long-term state clean energy build out policy that sends clear signals to investors. Through its 12th Five Year Plan, China has identified “new energy” as one among seven “strategic emerging industries” and will invest $760 billion over the next 10 years in this sector alone. A range of complementary policies will guide these investment decisions, including the Renewable Energy Law, national demand-side management regulations, and pilot carbon taxes, among others. China has swiftly made itself a clean energy power, in large part by ensuring the availability of copious, affordable capital at a time it has been short in the United States.

The following chart compares asset financing available to U.S. and Chinese solar companies:

[The Brookings Institution, 2011, emphasis added]